Gold has been testing the $1,300 level for a while and now, thanks to fresh declines in the US dollar, gold skyrocketed to above $1,320. The gold market has busted out of a triangle type on consolidation pattern on the daily chart. As long as the market settles above the $1,300 level the door is open for a continued upside run toward the $1,420 zone.

After gold bulls spent last week knocking at the door of the important $1,300 level, the yellow metal skyrocketed higher in Asian and London trading supported by fresh declines in the U.S. dollar. Stop-loss orders and high frequency program trading helped to accelerate the bounce to higher levels.

December Comex gold futures surged to a fresh five-week high touching an overnight high at $1,322.70, the highest level since June 20. Technically, on the chart, a settlement above the $1,300 level on Monday will confirm an intermediate term bottom on the daily chart.

The gold market has busted out of a triangle type of consolidation pattern on the daily chart. Triangles are generally continuation patterns, but on occasions such as now, they can act as bottoming formations. The measured move objective or target from this triangle projects to roughly the $1,420 area. Important chart congestive resistance is also seen in the $1423/1426 area, from late May and early June.

As long as the market settles above the $1,300 level and sustains action above there (conservative traders tend to wait to two consecutive settlements above the breakout point when trading a triangle formation), the door is open for a continued upside run toward the $1420 zone.

It is not uncommon for markets to come back and retest “breakout” points. So, a dip back toward the $1,300 level near term is possible. The market’s reaction around the breakout point will be key. The bulls need that to hold to keep the positive outlook intact.

Daily momentum is rising, which is supportive near term. However, the 9-day relative strength index (RSI) is nearing overbought (at 66% early on Monday). Any reading over 70% is overbought. Markets can remain overbought for days or weeks during a strong trend. But, it is worth keeping an eye on.

The short-term moving average picture has improved. The December contract is above its 20-day and is testing 40-day moving average resistance around $1,320.30 on Monday. The 40-day moving average will be an important hurdle to sustain gains above.

Bottom line? The market has posted an important upside breakout. The burden is on the bulls to sustain the move. Holding gains above $1,300 is critical here to keep a bullish outlook and upside targets intact.

Note: On a technical note, open interest (or the number of outstanding futures contracts) is now largest in the Comex December contract. As of July 18, the most recent data available, Dec open interest totaled 170,343, versus 135,265 in the August contract.